Metropolitan vs country house investment risks: Pete Wargent

I'm often asked why I prefer markets like inner- and middle-ring Sydney and properties in and around London to regional property markets, such small towns or those located 100-500+km from the cities where rental yields might be a little higher.

The answer, in one word, is: risk.

If you pick a hot regional market or mining town to invest in you might do well in the short-term.

Property is not a short-term investment, however, and you should aim to own property in markets with a diversified range of industries and forms of employment. There is absolutely no point in picking a market which is hot for 6 months while a mine is being constructed if prices then ease again immediately thereafter.

Property is a long-term investment and you need to own quality, desirable properties where the population and demand is growing rapidly but the supply of land for release is constrained.

If you speculate in cheap regional markets at today's elevated levels of leverage, you are introducing  a significant risk - in my opinion.

Towns with few industries

When I was growing up, Stoke-on-Trent in the middle of England was known as the home of pottery in the UK, although Britain's manufacturing industry has died a long, slow death in truth.

Before that, however, Stoke was a genuine boomtown setting all kinds of records for coal production, with the famous Chatterley Colliery becoming the first in Britain to mine more than 1 million tonnes of the black stuff. As late as 1992 the awesome Trentham Superpit was still churning out the last of its 2.5 million tonnes of coal.

The coal industry once employed more than 20,000 men in the town.

In 1994, the last of the pits was closed down and today all that remains today is the ugly slag-heaps which you can still see on the skyline. The steel industry in the town, sadly, went the same way.

Today, despite a rapidly growing wider UK population over the decades, the BBC reports thathouses in Stoke are selling for one pound.

Meanwhile in London prices are reportedly some 17% above their previous peak.

I can't tell you what will happen to regional markets in Australia over the next few decades, but it appears doubtful that the desirable suburbs in capital city markets will ever become significantly cheaper given the massive population growth being experienced.

Pete Wargent holds a range of finance and property qualifications and is the author of Get a Financial Grip – a simple plan for financial freedom.